CBRT: No change expected due to tight monetary policy requirement

CBRT: No change expected due to tight monetary policy requirement
CBRT: No change expected due to tight monetary policy requirement

In an environment where the upward outlook for inflation continues and the policy rate is determined above inflation, we do not expect any change regarding the interest rate decision of the Central Bank on May 6. The current outlook of inflation, which rose to 17.1% in April, and a few significant risks in the coming months pose an obstacle to the Central Bank's easing. The policy rate, which was raised to 19% in the March MPC, provided a safeguard against inflation, which rose in the following months and closed the margin. In this respect, the 200 basis points interest rate hike made by the former gpvernor Ağbal’s Central Bank administration was front-loaded and front-thinking.   Although the Central Bank raised its year-end expectation to 12.2% in the latest Inflation Report, it still stands at an optimistic point compared to the general expectations of market participants. On the other hand, despite the commitment to apply interest rates on inflation, the Central Bank's assessment of April inflation as a peak in the base scenario shows that it does not think that additional tightening will be needed in the coming months. In this context, taking a step according to the May inflation we will get on June 3 indicates an important risk-taking situation regarding the policy. Because the subcomponents of inflation point out that there is currently no factor that will help us with inflation other than the base effect. A periodic inflation drop should not be a criterion for policy easing.   The pressure of domestic PPI on consumer prices continues. It is also predictable that this pressure on the CPI will continue due to the widened gap. Currency increases and cost pressure from commodity prices resulted in a serious accumulation on PPI. After the closure is over, it can be expected that it will reflect more on consumer prices with increasing domestic demand, because the movement in demand will also allow the reflection of hikes. In this respect, we will see that the risks regarding inflation will not be eliminated. In this period, in terms of price stability, the application of interest over inflation should continue. Since the Central Bank dropped the phrase "long-term tight stance" from its policy statement in the last MPC, we have to define the current practice as "interest over inflation".   The first rate cut can take place in 3Q21. Depending on the decline in inflation, we expect the rate cuts to be limited. The interest must remain high enough in order to limit dollarization, to take measures against liquidity conditions that will arise due to the Fed's assessment of monetary tightening, and not to be adversely affected by global capital movements. In terms of easing the policy, what should be taken as a basis should be a permanent and sustainable decline in inflation with all its indicators. Kaynak Tera Yatırım

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